Activity in the legacy insurance market has boomed. However, as capital pours in, perhaps it is best to understand how pricing will develop in the space and whether increased capital will drive price deterioration.
Executive SummaryWhile price competition is attractive to insurers that are considering ceding reserve risk to the legacy market, James Dickerson at Willis Re says there are also many non-price deal drivers for the choice of a legacy partner, such as reputational protection, deal-making competencies, flexibility of approach and claims management/operational pedigree.
For a start, it is widely acknowledged that an abundance of capital in the live market has driven competition, constrained rate increases and resulted in a prolonged period of soft market conditions. While the live market has wrestled with these dynamics, activity in the legacy market has boomed. In addition, reports speculating that the legacy market’s ROE significantly outstrips live market returns have only served to compound investor interest.
The result is that capital from both traditional and alternative sources has flowed into the legacy sector. Established legacy carriers have raised significant funds to grow their businesses, and new vehicles have entered the market to assume risk—in many cases with sizable balance sheets to deploy.